ACS 3907 E-Commerce

1/6/2020

©Bowen Hui, Beyond the Cube Consulting Services Ltd.

ACS 3907E-Commerce

Lecture 2-1

Instructor: Kerry Augustine

E-Commerce Business Models and Concepts

Business-to-Consumer (B2C)

Consumer-to-Consumer (C2C)

Business Plan and Business Model

• Business model = set of planned activities designed to result in a profit in a marketplace

• Business plan = a document detailing firm’s business model and financial viability– Major pieces:

• Description of customers to be served and relationship with them

• Description of all products and services that will be offered

• Description of process required to produce and deliver them

• List of resources required, identification of their availability

• Description of supply chain: suppliers, other partners

• Description of revenue model, anticipated costs, finance sources, estimated profitability (financial viability)

• E-commerce business model = a business model that aims to use and leverage the unique qualities of the Internet and Web

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Competition in the Internet Economy

• Has low barriers to entry

• Increasingly easier for countries, companies, individuals to participate in Internet economy

• Very intense competition

• Online transactions make the following possible:– Customers can readily find cheaper and better products

– Customers can compare prices easily, use of shopping search engine

– Product differentiation (e.g. reviews, recommendations, ratings)

– Personalization: tailor toward specific customer preferences

– Low/competitive prices

– Call centre customer support

– Reduced barriers to entry – no need for physical store or sales force

– Discover large number of profitable market niches

– Size, location, language may not be major factors

Non-Technical EC Trends

• Increased Internet usage and opportunities for buying

• Purchasing incentives

• Increased privacy and security interest

• More efficient information handling

• Innovative organizations

• Virtual communities

• Remote collaboration

• Online auctions

• Global firms and e-governance

What are some new business opportunities?

Technical EC Trends

• Decreased cost and greater availability of client computers

• Greater availability and functionality in servers

• Advances in network and wireless technologies

• Advances in EC software and services

• Advances in search engine technology

• Growth of peer-to-peer technology

• Advances in mobile and wearable devices

• Growth in AI and IoT

What are some new EC trends and challenges?

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Impact of EC on Businesses

• New technologies offer companies unprecedented opportunities to rethink business strategies, models, processes, and relationships

• Special focus:– Improve marketing of existing products

– Improve creation (manufacturing) of existing products

– Improve customer service

– Improve operations (e.g., efficiencies, satellite offices)

Key to a Successful EC Business Model

• Leverage unique qualities of the Web

• Provide value to customers

• Develop highly effective and efficient operations

• Avoid legal problems

• Produce profitable business results

• Scale as the firm size grows

Tweet Tweet: Twitter’s Business Model

• What characteristics or benchmarks can be used to assess the business value of a company such as Twitter?

• Have you used Twitter to communicate with friends or family? What are your thoughts on this service?

• What are Twitter’s most important assets?

• Which of the various methods described for monetizing Twitter’s assets do you feel might be most successful?

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Eight Key Elements of a Business Model

1. Value proposition

2. Revenue model

3. Market opportunity

4. Competitive environment

5. Competitive advantage

6. Market strategy

7. Organizational development

8. Management team

©Bowen Hui, Beyond the Cube Consulting Services Ltd.11

1. Value Proposition

• How a company’s product and service fulfills customer needs

• Answer to “why choose you?”

• May differ for different market segments

• E.g. Amazon:– Unparallel selection

– Convenience (24/7 shopping, cheap/free delivery)

– Competitive prices

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2. Revenue Model

• How firm will earn revenue, produce profits, produce superior return on invested capital

• Also called financial model

• Success of a firm: produce returns > alternative investments

Types of Revenue Models

• Advertising = provides forum for ads, receive fees from advertisers– E.g., Yahoo!.com

• Subscription = charges subscription fees for some/all of company’s content/service offerings– E.g., eHarmony.com

• Transaction fees = forum that enables/executes transaction – E.g., eBay.com

• Sales = sells goods, information, or services– E.g., Amazon.com, Gap.com

• Affiliate = steers business to an affiliate, receives referral fee or % revenue from resulting sales– E.g., MyPoints.com

Foursquare Checks Out a Revenue Model

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Foursquare: Check Your Privacy at the Door

• What revenue model does Foursquare use? What other revenue models might be appropriate?

• Are privacy concerns the only shortcoming of location-based mobile services?

• Should business firms be allowed to call cell phones with advertising messages based on location?

3. Market Opportunity• Identify firm’s intended marketspace

• Identify potential financial opportunities in that marketspace

• Usually divided into smaller market niches

• Realistic market opportunity is defined by revenue potential in each market niches where you hope to compete

• E.g., software learning system to sell online– Overall market: all those who participate in software training

– Smaller niches:

• Instructor-led training products

• Computer-based training

• Each can be subdivided as well

– Realistic market: not big companies or brand names, just to market segment that “helps” (e.g. increase efficiency, decrease cost, better quality)

4. Competitive Environment

• Must identify:– Other competitors operating in same marketspace

– Presence of substitute products

– Potential new entrants to market

– Power of consumers/suppliers over your business

• Field survey example

• Sole supplier example

• Market analysis can help avoid:– Market with many competitors may mean that market is saturated,

thus, difficult to generate profit

– Untapped market may mean that market was tried without success

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5. Competitive Advantage

• Achieved when firm produces superior product or cheaper-than-most product

• Asymmetry = when one participant has more resources

• First-mover advantage = competitive market advantage results from being a first-mover in that market

• Complementary resources = resources/assets not directly involved in production but crucial to success – E.g., reputation, management

• Unfair competitive advantage = occurs when firm develops advantage based on factor that other firms cannot purchase – E.g., brands: built on loyalty, trust, reliability, which enables premium

charges on products

Ex. First Mover Advantage

• Blackberry was the first brand to seamlessly integrate mobile communication, internet capabilities and corporate email into a convenient hand held gadget.

• Blackberry's stranglehold on smart phone market was strongly challenged by Apple with its introduction of iPhone in June 2007.

• Apple redefined the smartphone.

• Apple significantly improved the convergence of a mobile phone, a music player, an internet browser, a digital camera, and an in-built GPS. Furthermore, iPhone was efficiently connected to iTunes, Apple's online store to purchase music and movies.

6. Market Strategy

• “How do you plan to promote your products or services to attract your target audience?”

– Details how a company intends to enter market and attract customers

– Best business concepts will fail if not properly marketed to potential customers

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7. Organizational Development

• “What types of organizational structures within the firm are necessary to carry out the business plan?”

• Organizational development

– Plan describing how company will organize required work to be done

– Typically divided into functional departments

– Need efficient implementation of business plans and strategies

– Important for growing company

8. Management Team

• “What kind of backgrounds should the company’s leaders have?”

• A strong management team:

– Can make the business model work

– Can give credibility to outside investors

– Has market-specific knowledge

– Has experience in implementing business plans

Raising Capital

• Seed capital• Traditional sources

– Incubators– Commercial banks– Angel investors– Venture capital firms– Strategic partners

• Crowdfunding– JOBS Act

1/6/2020

Crowdfunding Takes Off

• What types of projects and companies might be able to most successfully use crowdfunding?

• Are there any negative aspects to crowdfunding?

• What obstacles are presented in the use of crowdfunding as a method to fund start-ups?

More than $15M raised from more than 80 countries. Despite being open for only 12 days, the GoFundMe campaign for the victims of the Humboldt Broncos bus crash raised $15.1 million, making it the crowd-sourcing site's second-biggest ever, topped only by that of the Time's Up Legal Defence Fund.

Categorizing EC Business Models

• Major categories:

– B2C – business-to-consumer

– B2B – business-to-business (extends to “organizations” such as government)

– C2C – customer-to-customer

– Mobile e-commerce (M-commerce)

– Social e-commerce

– Local e-commerce

Team Exercises

Round 1 Team Exercise (1)

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Business-to-Consumer (B2C)

B2C Business Models

• E-tailer

• Community provider (social network)

• Content provider

• Portal

• Transaction broker

• Market creator

• Service provider

B2C Business Models

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E-tailer

• Online retail store• Some are port of existing physical stores• Revenue model is based on product sales• Large potential market: retail market and Internet users• Extremely competitive sector because low barriers to entry• Barriers to entry = total cost of entering new marketplace• Challenge is to differentiate one’s business from existing

stores/websites• If try to reach every online user – likely deplete resources quickly• Key

– Focus on niche market and target audience– Keep expenses low– Keep selection broad– Good inventory control

Types of E-tailers

• Virtual merchant = e-tailer with no physical store

• Brick-and-clicks = e-tailer with physical store

• Catalog merchant = online version of direct mail catalog

• Manufacturer-direct = manufacturer uses online channel to sell directly to customers

• Match companies to business models:– Walmart/ Ikea

– Dell

– Amazon

– Lands’ End (no physical store in Winnipeg)

Types of E-tailers

• Match companies to business models:– Walmart/ Ikea Bricks-and-clicks

– Dell

– Amazon

1/6/2020

Types of E-tailers

– Dell Manufacturer-direct

– Amazon

Types of E-tailers

– Amazon Virtual Merchant

Types of E-tailers

– Amazon Virtual Merchant

– Lands’ End (no physical store in Winnipeg) Catalog merchant

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Community Provider

• Sites that create digital online environment where people with similar interests can:– Transact

– Share interests, photos, videos, anecdotes

– Communicate with like-minded people

– Receive interest-related information

• No limitation of geography and time

• Value proposition: create fast, convenient, one-step site where users can focus on their most important things

• Typically hybrid revenue models

• Provide ideal marketing and ad territories

Example Community Provider

Content Provider

• Distributes digital information content over the Web– E.g., news, media, music, art, etc.

• Intellectual property = all forms of human expression that can be put into tangible medium (such as CDs or on the Web)

• Revenue model: subscription fee or transaction fee

• Key is to own content (e.g., own copyright)

• Syndication = distribute content produced by others

• Web aggregator = syndication plus some added value to content – E.g., summary statistics or additional analysis

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Battle of the Titans: Music in the Cloud

Portal

• Offer powerful Web search tools, integrated package of content and services all in one place

• Used to be viewed as “gateway” to the Internet

• Do not sell anything directly to users

• Service via ads, referral fees, premium services

• Horizontal portal = portal that includes everyone in marketspace

• Vertical portal = similar to horizontal portals in services, but focused on particular subject matter or market segment– Also called vortal

– Visitors to specialized niche vortals spend more money than average Yahoo visitor

– If attract enough market segment, advertisers are willing to pay premium to reach target audience

• Search = portals focused on search engine services

Example Portal

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Example Vortal - LinkedIn

B2C Models: Transaction Broker

• Process online transactions for consumers– Primary value proposition—saving time and money

• Revenue model: – Transaction fees

• Industries using this model:– Financial services

– Travel services

– Job placement services

Example Transaction Broker

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Market Creator

• Builds digital environment where buyers and sellers can:– Meet

– Display products

– Search for products

– Establish price for products

• E.g., eBay

• Has no inventory or production costs

Example Market Creator

Service Provider

• Offers online services

• E.g. photo sharing, maps, email, calendar, financial planning, advice (medical), appointment scheduling

• Various revenue models: fees, subscriptions, ads, collecting personal information and then selling it

• Some mix services and products

• Value proposition: convenience, time savings, low-cost, valuable alternatives to traditional services

• Convenience – important factor for time-starved people – A key predictor to online buying behaviour

• Critical to build confidence and trust

1/6/2020

Example Service Provider

• A way for consumers to sell to each other, via online business

ACS 3907 E-Commerce › ... › Lec2-1_notes.pdf · • Identify potential financial opportunities...

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